The economics and politics of instability, empire, and energy, with a focus on Latin America and the Caribbean, plus other random blather and my wonderful wonderful wife. And I’d like a cigar right now.

May 27, 2017

Uruguay and New Zealand: Never alike?

So here I am in Uruguay! Getting here was a bit more involved than I had hoped. My Copa flight gave me 45 minutes to change planes in Panama City, but thunderstorms delayed our departure from Dulles for about that long, and that was that. Overnight in Panama.

In a previous post, I showed evidence that Uruguay and New Zealand were very similar in terms of their geographic endowment (meaning lots of great grazing lands) but Uruguayan farners failed to adopt technological innovations that their New Zealander cousins took up with abandon. I asked why and got two good hypothesis: Shah8 suggested that New Zealanders were more integrated with Australia and had access to cheaper capital, while Sam pointed out that Uruguayans were far less educated than New Zealanders in 1900.

Well, there is another possibility. In the late 19th and early 20th centuries there were two ways to generate large-scale energy: burn a fossil fuel or dam a river. But Uruguay is flat, with no natural lakes, and it receives only 75% as much rainfall. Moreover, that rainfall is more erratic. Reto Bertoni and Henry Willeband (Universidad de la República) noticed that difference, and gathered hydro cost data for the two countries. And they found this circa 1920 (page 25):

Capital costs for hydropower in Uruguay were triple their level in New Zealand; operating costs (for all electric power plants) were double. And if you consider Shah8’s conjecture that capital was scarcer in Uruguay, then the levelized capital cost relative to N.Z. will be even higher than these figures imply.

New Zealand and Uruguay were very much unalike in one key respect — hydropower resources. But two quibbles. First, hydro was not the only source of power. The Uruguayans could have burned coal. Second, did energy matter that much? Sure, it cost more than in New Zealand, but that does not mean that those higher costs mattered in countries dependent on agriculture.